Engineering group Downer has shed some light on its shortlisted bids for NSW’s intercity fleet contract and Canberra light rail, as well as its EOI for Victoria’s next-gen rolling stock.
Downer reported a net profit after tax of $210.2 million for 2014/15 on Thursday, and ranks rail among its most promising sectors going forward. But the engineer warned it faces a tough year ahead.
Its NPAT figure was down 2.7% from last year, in line with earlier guidance. Strong performances from its Transport Services aided the result, with that division’s revenue up 7.9% to $2.0 billion.
Meanwhile a “challenging” year for Engineering, Construction and Maintenance sector hurt the company, with that division’s revenue falling 7.4% to $1.89 billion.
The engineer’s Mining division saw revenue decline 19.8% to $1.59 billion, “reflecting a number of contract completions and volume reductions”. Given “an extremely difficult market,” however, Downer said the mining result was a “strong” one.
The ASX-listed engineer took a hit to its share price on Thursday due to its outlook statement. Downer said providing guidance for 2016 has “proven more difficult than in the past five years”.
“There is weakness and a high degree of uncertainty in a number of our end markets, particularly resources based construction and mining,” the company explained.
Downer was more confident in the rail sector, however, specifically identifying its Rail division as a promising one going forward. The division saw a 12.9% revenue decline in 2014/15, but its earnings before interest and tax (EBIT) was up 24.4%.
“Rail’s revenue declined due to the completion of a number of passenger manufacturing contracts, including the Waratah Train Project,” Downer said.
“This was partially offset by higher revenue from the [Waratah] Through Life Support contract and the Keolis Downer and Downer Bombardier joint ventures.”
Overall in 2014/15, the engineer recognised “improved performance from Rail”. Going forward, it said there were “a number of major bids in the pipeline”.
A $1 billion, 10-year locomotive maintenance deal with Pacific National, announced in February 2015, was part of the engineer’s optimistic outlook for its Rail division going forward.
In terms of bids, Downer said it is well-placed with its experience on the Waratah project, to progress in the NSW intercity fleet tender, for which it is part of one of four shortlisted consortia.
“Downer will join with Changchun Railway Company (CRC) to develop the proposal and deliver the program should it be successful,” the engineer explained. “This project represents a significant opportunity for the Group to capitalise on the expertise and IP created from the Waratah Train Project.”
The company is also shortlisted for the delivery of the Canberra light rail project, known as Capital Metro. The engineer is part of the ACTivate consortium, along with Bombardier, Plenary, Keolis Downer, Keolis, Parsons Brinckerhoff, Aurecon, Cox, Itochu and Partners Group.
A preferred bidder announcement is expected by the end of this year.
“Downer is participating in the consortium as operator and maintainer through Keolis Downer and as the designer and constructer of the light rail system, including the depot.
“Light rail design and construction is an exciting new focus for the Group as cities in Australia and New Zealand increasingly look to light rail to solve their public transport needs.”
Downer also confirmed it is preparing an EOI for the Victorian Government’s tender for 37 next generation, high capacity trains.
“Downer will again join with CRC to develop the proposal and deliver the program should it be successful,” the company said. “This project will utilise proven CRC designs currently in operation in Hong Kong.
The three bids – NSW intercity, Canberra light rail, and Victorian next-gen – are expected to each cost Downer between $10 million and $15 million, but the company said costs “are being capitalised in accordance with Australian Accounting Standards and will be expensed in the event [the bids are] unsuccessful.”